My last post reviewed the major stakeholder groups who have an interest in good corporate governance. The focus of this post is that corporate governance starts with the Board of Directors.
Simply put, the Board reports to the company’s owners (stockholders) and its essential responsibilities include the duty to:
- Provide the “tone at the top” on values and the corporate culture
- Establish corporate strategy
- Hire and compensate the senior staff, the C-Suite
- Satisfy stockholder financial expectations
- Ensure full compliance with legal and regulatory requirements.
A new responsibility for Boards in the US and UK is balancing stockholder interest with those of other stakeholder groups. This will be the subject of a future post.
Since my post Good Governance Needs an Ethical Culture (July 21, 2008), the world was in the early stages of the Economic Crisis of 2007/2008. Seems it’s time to look at how the Board influences corporate culture.
A corporate culture is the written and unwritten rules of how things get done within an organization. The written aspect is a document or the published statements of the Board or C-Level managers. For example, on Lockheed Martin’s website Culture page is this statement:
“Shaping a corporate culture is anything but passive. It’s a hands-on endeavor that requires the active participation of everyone who touches it, and everyone who is touched by it. Lockheed Martin is proud to support a culture in which all employees are respected and empowered to do the right thing. Every day, in every situation.”
This is reinforced by “tone from the top” provided by the company’s Chairman of the Board and C-Level Managers.
Informal corporate cultures are determined by the grapevine, water cooler and hallway discussions, and result in unfocused, changing and ad-hoc behavior all focused on the short term. This short-termism preceded the bankruptcies of the Enron Era and the Financial crisis of 2007/2008. The paper, “Short-Termism, the Financial Crisis, and Corporate Governance” indicates:
To the extent that a firm’s culture is focused on employee self-interest, a greater likelihood exists that when employee self-interest and the long-term health of the firm diverge, the long-term health of the firm will be sacrificed to save employee self-interest.
Boards and C-Levels need to set the “tone at the top” regarding the longer term interests of the company and to continually reinforce this in all employee communications opportunities.
In addition to this important action, the Board should insist on implementation of the following actions:
- TAKE ACTION
Publish corporate culture guides for employees and leaders
Provide short online courses
- CONTINUING COMMUNICATIONS
Throughout the year distribute to all locations communication materials in multiple languages that deal with culture matters. These materials help maintain an awareness of current issues, familiarize employees with business conduct expectations, and promote understanding of business values and philosophy.
As Lord Kelvin said, “To measure is to know.” At a minimum, the company should issue an annual employee culture survey and have results reviewed by the Board.
Companies whose Boards champion an effective corporate culture are awarded with superior financial performance. Just look at the continuing research of GreatPlaceToWork consultants who give strong attention to culture assessments in their awarding Top Company honors.. The top companies outperform major stock market indices.